Exam 12: Macroanalysis and Microvaluation of the Stock Market

Exhibit 12.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent. -Refer to Exhibit 12.9. What is the current earnings multiplier?

Which of the following economic series are included in the NBER coincident indicator group?

Exhibit 12.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent. -Refer to Exhibit 12.2. What is your expectation of the market P/E ratio?

When applying the earnings multiplier model all of the following will cause the required rate of return, k, to change except

Which of the following are not cyclical indicators?

The first step in the Goldman Sachs analysis of world markets examines a country's aggregate economy and its components that relate to the valuation of securities.

Exhibit 12.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent. -Refer to Exhibit 12.2. To what price will the market rise if the earnings expectation is $32.00?

Exhibit 12.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available: Estimated profit margin = 15% Total asset turnover = 2 Financial leverage = 1.2 Estimated dividend payout ratio = 75% Required rate of return = 14% Estimated EPS = $2.50 -Refer to Exhibit 12.5. Calculate the firm's ROE.

The correlation of stock market returns between the U.S. and Japan is ____ and ____.

Jensen, Johnson, and Mercer showed that the relationship between stock returns and size and price-to-book ratio holds in periods when monetary policy is

Which of the following is not a major variable that affects the aggregate stock market earning multiplier in a country?

Exhibit 12.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 65 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent. -Refer to Exhibit 12.1. What is the expected sustainable growth rate?

Exhibit 12.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company. Year 2003 Estimated Year 2004 GDP 11,000 Billion GDP growth 3.5\% Sales per share \ 800 Operating profit margin 12\% Depreciation/Fixed Assets 14\% Fixed asset turnover 2 Interest rate 3.5\% Total asset turnover 0.7 Debt/Total assets 45\% Tax rate 36\% In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth is % $\Delta$ Sales per share = 0.015 + 0.75(% $\Delta$ GDP) -Refer to Exhibit 12.6. Calculate the per share interest rate charge for the year 2004.

Which of the following variables was considered not significant in explaining stock returns?

Exhibit 12.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company. Year 2003 Estimated Year 2004 GDP 11,000 Billion GDP growth 3.5\% Sales per share \ 800 Operating profit margin 12\% Depreciation/Fixed Assets 14\% Fixed asset turnover 2 Interest rate 3.5\% Total asset turnover 0.7 Debt/Total assets 45\% Tax rate 36\% In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth is % $\Delta$ Sales per share = 0.015 + 0.75(% $\Delta$ GDP) -Refer to Exhibit 12.6. Calculate the per share EBIT for the year 2004.

Exhibit 12.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 45 percent when the rate on long term government bonds falls to 9 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 16 percent return. The return on equity will be 14 percent. -Refer to Exhibit 12.4. To what price will the market rise if the earnings expectation is $10.00?

Exhibit 12.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 55 percent when the rate on long-term government bonds falls to 9 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 8 percent and investors will require a 7 percent return. The return on equity will be 13 percent. -Refer to Exhibit 12.3. What is your expectation of the market P/E ratio?

Recent studies show that money supply changes have an important impact on stock price movements.

Exhibit 12.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company. Year 2003 Estimated Year 2004 GDP 11,000 Billion GDP growth 3.5\% Sales per share \ 800 Operating profit margin 12\% Depreciation/Fixed Assets 14\% Fixed asset turnover 2 Interest rate 3.5\% Total asset turnover 0.7 Debt/Total assets 45\% Tax rate 36\% In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth is % $\Delta$ Sales per share = 0.015 + 0.75(% $\Delta$ GDP) -Refer to Exhibit 12.6. Calculate the firm's level of debt for the year 2004.

Exhibit 12.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 65 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent. -Refer to Exhibit 12.1. What is your expectation of the market P/E ratio?